Investigating the impact of banking diversification on efficiency : The case of Vietnamese commercial banks

Abstract

This research proposes the impact of diversification on banking efficiency in the context of 28 Vietnamese commercial banks during the period of 2007-2012. First, diversification is examined in three dimensions: assets, income and funding by applying Herfindahl-Hirschman Index (HHI). Then, efficiency is analyzed by using non-parametric method Data Envelopment Analysis (DEA) by employing customer deposits, operating expenses and fixed assets represented as input and customer loans and operating income as output. Finally, the relationship between the degree of diversification and technical efficiency of commercial banks is assessed by the regression model. The results suggest a positive impact of funding diversification on technical efficiency while the effects of diversification in income and asset are negligible.